Day: May 25, 2024

Pope Francis making ‘every effort’ to get people back to the Catholic faith, claims Princess Gloria  Leader Publications

By Daniel Lacalle

The money supply is rising again, and persistent price inflation is not a surprise. Price inflation occurs when the amount of currency increases significantly above private sector demand. For investors, the worst decision in this environment of monetary destruction is to invest in sovereign bonds and keep cash. The government’s destruction of the purchasing power of the currency is a policy, not a coincidence.

Readers ask me why the government would be interested in eroding the purchasing power of the currency they issue. It is remarkably simple.

Monetary inflation is the equivalent of an implicit default. It is a manifestation of the lack of solvency and credibility of the currency issuer.

Governments know that they can disguise their fiscal imbalances through the gradual reduction of the purchasing power of the currency and with this policy, they achieve two things: Inflation is a hidden transfer of wealth from deposit savers and real wages to the government; it is a disguised tax. Additionally, the government expropriates wealth from the private sector, making the productive part of the economy assume the default of the currency issuer by imposing the utilization of its currency by law as well as forcing economic agents to purchase its bonds via regulation. The entire financial system’s regulation is built on the false premise that the lowest-risk asset is the sovereign bond. This forces banks to accumulate currency—sovereign bonds—and regulation incentivizes state intervention and crowding out of the private sector by forcing through regulation to use zero to little capital to finance government entities and the public sector.

Once we understand that inflation is a policy and that it is an implicit default of the issuer, we can comprehend why the traditional sixty-forty portfolio does not work.

Currency is debt and sovereign bonds are currency. When governments have exhausted their fiscal space, the crowding-out effect of the state on credit adds to the rising taxation levels to cripple the potential of the productive economy, the private sector, in favor of constantly rising government unfunded liabilities.

Economists warn of rising debt, which is correct, but we sometimes ignore the impact on currency purchasing power of unfunded liabilities. The United States’s debt is enormous at $34 trillion, and the public deficit is intolerable at nearly $2 trillion per year, but that is a drop in the bucket compared with the unfunded liabilities that will cripple the economy and erode the currency in the future.

The estimated unfunded Social Security and Medicare liability is $175.3 trillion (Financial Report of the United States Government, February 2024). Yes, that is 6.4 times the GDP of the United States. If you think that will be financed with taxes “on the rich,” you have a problem with mathematics.

The situation in the United States is not an exception. In countries like Spain, unfunded public pension liabilities exceed 500% of GDP. In the European Union, according to Eurostat, the average is close to 200% of GDP. And that is only unfunded pension liabilities. Eurostat does not analyze unfunded entitlement program liabilities.

This means that governments will continue to use the “tax the rich” false narrative to increase taxation on the middle class and impose the most regressive tax of all, inflation.

It is not a coincidence that central banks want to implement digital currencies as quickly as possible. Central Bank Digital currencies are surveillance disguised as money and a means of eliminating the limitations of the inflationary policies of the current quantitative easing programs. Central bankers are increasingly frustrated because the transmission mechanisms of monetary policy are not fully under their control. By eliminating the banking channel and thus the inflation backstop of credit demand, central banks and governments can try to eliminate the competition of independent forms of money through coercion and debase the currency at will to maintain and increase the size of the state in the economy.

Gold vs. bonds shows this perfectly. Gold has risen 89% in the past five years, compared to 85% for the S&P 500 and a disappointing 0.7% for the US aggregate bond index (as of May 17, 2024, according to Bloomberg).

Financial assets are reflecting the evidence of currency destruction. Equities and gold soar; bonds do nothing. It is the picture of governments using the fiat currency to disguise the credit solvency of the issuer.

Considering all this, gold is not expensive at all. It is exceedingly cheap. Central banks and policymakers know that there will be only one way to square the public accounts with trillions of dollars of unfunded liabilities. Repay those obligations with a worthless currency. Staying in cash is dangerous; accumulating government bonds is reckless; but rejecting gold is denying the reality of money.

• About the author: Daniel Lacalle, PhD, economist and fund manager, is the author of the bestselling books Freedom or Equality (2020), Escape from the Central Bank Trap (2017), The Energy World Is Flat​ (2015), and Life in the Financial Markets (2014). He is a professor of global economy at IE Business School in Madrid.
• Source: This article was published by the Mises Institute

The voices of freedom in the Republic of Georgia (the former Soviet republic, not the home of the Bulldogs) will be substantially less audible thanks to a new law passed by Parliament. Organizations receiving more than 20% of their funding from foreign sources must be designated as “agents of foreign influence.”

Nonprofits in Georgia that have advocated for freedom and free markets receive a substantial share of their funding through grants from foreign foundations. That is likely to come to an end.

This article offers some details on the new law, which is similar to a law in Russia that brands organizations that receive foreign funding as foreign agents. Most Georgians appear opposed to the law, and the real foreign influence here is Russia. As the article notes, Georgia has been trying to move away from the sphere of Russian influence and toward the EU, but that move is proving difficult.

Some readers may know that after the dissolution of the Soviet Union in 1991, Georgia was one of the more corrupt former Soviet republics. That changed in the mid-2000s when new leadership brought free-market reforms, more freedom on all fronts, and, as a result, growing prosperity.

Those reforms were supported by Georgian nonprofits that promoted the ideas of freedom. A Georgian friend of mine tells me that the politicians who are promoting this legislation are branding those organizations as “enemies of the state,” resulting in attacks, sometimes violent attacks, on those who are so accused.

This law will mute the voices of freedom in Georgia and turn the country, which for two decades moved away from Russian influence toward the West, back toward heavy-handed Russian-style governance.

Why would Georgia’s political leadership turn their backs on the institutional reforms that have shown such success for two decades? The main goal of those who have political power is to maintain and increase their power. The well-being of the masses is, at best, a secondary consideration. We can hope for the sake of the Georgian people that this is not the first step that will turn Georgia into another Venezuela.

• This article was published by The Beacon

By Sayantan Haldar and Abhishek Sharma

The Indo-Pacific security landscape has emerged as a critical flashpoint for geopolitical contests. Growing Chinese naval aggression in the South China Sea (SCS) has long been a major concern for countries with strategic stakes in the region. The United States (US) and other like-minded countries have increasingly looked to bolster efforts to counter the imminent threats posed by China’s increased naval activities.

Much of the Chinese aggression in recent months has been targeted at the Philippines, a US treaty ally, which is confronting Beijing’s maritime misconduct in the SCS on a regular basis. Therefore to further strengthen the Philippines’ maritime security, the Defense Ministers of the US, Japan, Australia, and the Philippines met in Hawaii to discuss ways of advancing and continuing maritime cooperation. As per media reports, this grouping of four has been named ‘Squad’ by Pentagon officials.

Squad, security, and South China Sea  

Beijing’s continued efforts to reclaim contested maritime spaces through aggressive naval posturing in the SCS have been instrumental in intensifying the geopolitical contest in the region. In recent times, tensions between China and the Philippines have been the focal point of conversations about the evolving geopolitics in the SCS. The West Philippine Sea, which Manila claims to have jurisdiction over, has emerged as the hotbed of the Sino-Filipino contest.

However, confrontation between China and the Philippines is not new. In 2016, Manila moved to the Permanent Court of Arbitration against Beijing, challenging its historical claims over the nine-dash line—a critical maritime passage—key to Chinese maritime interests for the free flow of trade and resources. Tensions peaked earlier in March, in the aftermath of a physical confrontation between Chinese and Philippine soldiers which injured Manila’s soldiers and damaged their vessels. This prompted Philippines President Ferdinand Marcos Jr. to pledge to initiate countermeasures proportional to Chinese aggressions in the contested waterways.

President Marcos Jr., who assumed office in 2022, appears to have brought a shift in Manila’s strategy to deal with China. Marcos Jr. has further aligned with the US in its efforts to counter China. Amidst the ongoing tensions, Manila appeared to indicate its willingness to pursue a robust approach to dealing with China by way of joining the US-Japan-Philippines trilateral in 2024, which held its first leader’s summit in Washington on 11 April 2024.

Furthermore, US Secretary of Defense Lloyd Austin, on May 03, 2024, convened a meeting with his counterparts from Australia, Japan, and the Philippines emphasising their collective commitment to advance collaboration to counter Chinese conduct of obstructing the Philippines’ freedom of navigation in the South China Sea. The coming together of this grouping has been popularised as the formation of ‘Squad’. Nonetheless, the second meeting between the Defense Ministers of the Squad countries followed the first meeting which was held on 3 June 2023, where they discussed the same issue.

Besides Squad, the other minilateral and bilateral groupings feature in the maritime security thinking of the Philippines. These include the US-Japan-Philippines trilateral, and the Philippines’ bilateral defence relations with the US and Japan. Australia’s addition stops short of going beyond just holding joint military exercises, or what it called, maritime cooperative activity.

Thus, Squad’s emergence should be seen in two contexts, first is the failure of multilateral institutions like ASEAN in the region and the unwillingness of many ASEAN members to condemn Chinese coercive action outrightly; second, by way of establishing new complementary frameworks to strengthen the maritime security in West Philippine Sea through a mesh of a viable security arrangement, both bilateral and trilateral. Squad’s role in the present context is limited in scope and space as compared to other frameworks that exist.

Minilateralism and the logic of maritime security 

The formation of this new minilateral grouping has prompted some important questions.  Why are such configurations emerging in the Indo-Pacific? What explains the rise of minilaterals in the region? Further, with US, Japan, and Australia involved in this grouping, and being named ‘Squad’, naturally, references have been drawn to the already existing Quad.

Firstly, it would be inaccurate to view the emergence of the Squad as an outcome at the cost of the already existing Quad. Needless to mention, the leadership at Washington, Canberra. Tokyo and New Delhi continue to highlight the importance of the Quad, and no indication in contrast to this has emerged yet. The synergy among the Quad countries is directed towards fostering a secure and stable Indo-Pacific.

On the other hand, the Squad should be seen in the context of the specific contests that have characterized the SCSregion, and even more specifically the West Philippine Sea. India, and by extension, Quad’s role in the SCS, though relevant, remains limited in this specific sub-geography. The operational focus of any minilateral grouping is grounded on the geographies of their collective interests. For its part, the Quad has made promising progress in expanding realms of cooperation for maritime security. This is further evidenced by the joint naval cooperation—the Malabar Exercise, which has been conducted by the navies of the Quad countries routinely in important geographies in the Indo-Pacific.

Secondly, the question of rising minilaterals merits critical attention. The Indo-Pacific is a vast maritime geography. In this context, it is only natural that several countries are likely to have a varied focus on specific sub-regions which is determined by several factors. First, the geographical location is a key variable that shapes the contours of the strategic focus of various countries. Second, the geographies of strategic partnerships that a country pursues are a major variable. Third, interests in global trade, energy security, and marine resources also tend to dictate the specific subregions in which a country chooses to remain active. This is evident in the case of the Indo-Pacific as well. For example, the US has directed most of its focus towards the subregions in the Indo-Pacific towards the Pacific.

On the other hand, for India, the Indian Ocean, including the Western Indian Ocean has been its primary theatre of security interests. Australia appears to be expanding its focus towards the Indian Ocean under the Indo-Pacific rubric. Likewise, for the Philippines, its immediate maritime periphery, the SCS has been at the centre of its maritime security thinking in the Indo-Pacific context. Moreover, in the case of the Squad, like AUKUS, all the countries involved are largely security treaty partners of the US. Therefore, a security-oriented arrangement with a specific focus on a subregion is likely to emerge.

Further, due to the limited geographic scope of operations, minilateral groupings require a specific focus with less number of players involved. In a minilateral grouping, all the players involved are likely to be equally committed to cooperation and collaboration due to the similar nature of threat perception. These serve as an important foundation for players in minilateral initiatives to bolster cooperation due to their shared goals. In many ways, this explains the rise of minilateral groupings in the Indo-Pacific, in the place of a broader multilateral grouping involving players who have varied geographies of strategic and security interest. Additionally, minilateralism has also emerged as an important medium of bolstering cooperation for small and developing countries, who often are mindful of not positioning themselves at the crossroads of great-power contests. In this way, minilaterals are also useful in the construction of security architectures in specific subregions sensitive to the maritime security interests of players involved in the region.

The rise of Squad has, among other things, prompted a much-required debate on the rise of minilateralism in the Indo-Pacific. The proliferation of such groupings has come as a boon to several players involved in the broader geopolitics ensuing in the region. Minilateral groupings are seen as helpful as they aid in the making of maritime security architectures based on the strategic and security compulsions of the players involved in the region providing them with more space and agency to manoeuvre the complex challenges at sea. This is a natural outcome of the very nature in which geopolitics in the Indo-Pacific has evolved, involving maritime spaces with varied strategic environments, and countries with wide-ranging interests.

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About the authors:

• Sayantan Haldar is a Research Assistant with the Strategic Studies Programme at the Observer Research Foundation
• Abhishek Sharma is a Research Assistant with the Strategic Studies Programme at the Observer Research Foundation

Source: This article was published by the Observer Research Foundation

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